We have audited the attached Balance Sheet of Walchandnagar Industries
 Limited, as at 30th September, 2011 and also the Profit and Loss
 Account and the Cash Flow Statement for the year ended on that date
 annexed thereto, in which are incorporated the returns of the divisions
 at Zambia and Ethiopia audited by overseas local auditors and relied on
 by us.
 
 1.  These financial statements are the responsibility of the Company''s
 management. Our responsibility is to express an opinion on these
 financial statements based on our audit.
 
 2.  We conducted our audit in accordance with the Auditing Standards
 generally accepted in India. Those Standards require that we plan and
 perform the audit to obtain reasonable assurance about whether the
 financial statements are free of material misstatement. An audit
 includes examining, on a test basis, evidence supporting the amounts
 and disclosures in the financial statements.  An audit also includes
 assessing the accounting principles used and significant estimates made
 by management, as well as evaluating the overall financial statement
 presentation.  We believe that our audit provides a reasonable basis
 for our opinion.
 
 3.  As required by the Companies (Auditor''s Report) Order, 2003, as
 amended by the Companies (Auditor''s Report) (Amendment) Order, 2004,
 issued by the Central Government of India in terms of sub-section (4A)
 of Section 227 of the Companies Act, 1956, we enclose in the Annexure a
 statement on the matters specified in paragraphs 4 and 5 of the said
 Order.
 
 4.  Further to our comments in the Annexure referred to in paragraph 3
 above, we report that:
 
 (i) We have obtained all the information and explanations, which to the
 best of our knowledge and belief were necessary for the purposes of our
 audit;
 
 (ii) In our opinion, proper books of account as required by law, have
 been kept by the company so far as appears from our examination of
 those books and proper returns adequate for the purposes of our audit
 have been received from the divisions at Zambia and Ethiopia not
 visited by us. The divisions'' overseas Auditors'' Reports have been
 forwarded to us and appropriately dealt with;
 
 (iii) The balance sheet, profit and loss account and cash flow
 statement dealt with by this report are in agreement with the books of
 account and with the audited returns from the divisions at Zambia and
 Ethiopia;
 
 (iv) In our opinion, the balance sheet, profit and loss account and
 cash flow statement dealt with by this report comply with the
 Accounting Standards referred to in subsection (3C) of Section 211 of
 the Companies Act, 1956;
 
 (v) On the basis of written representations received from the
 Directors, as on 30th September 2011 and taken on record by the Board
 of Directors, we report that none of the Directors of the Company are
 disqualified as on 30th September 2011, from being appointed as a
 Director, in terms of clause (g) of sub-section (1) of Section 274 of
 the Companies Act, 1956;
 
 (vi) As stated in our earlier year''s audit report, no provision has
 been made for the liability, if any, in respect of the Bank Guarantee
 amounting to Rs 700 lacs invoked during the previous year and in respect
 of Rs 744 lacs owed by a party appearing in the balance sheet under the
 head Sundry Debtors as explained in the Note No. D 3(iii) of the
 Schedule ''O''. Since the matter is under arbitration, we are unable to
 opine on the likelihood of the liability devolving on the Company and
 the consequent effect on its Profit and the Reserves and Surplus.
 
 Subject to (vi) above, in our opinion and to the best of our
 information and according to the explanations given to us, the said
 accounts give the information required by the Companies Act, 1956, in
 the manner so required and give a true and fair view in conformity with
 the accounting principles generally accepted in India:
 
 (a) in the case of the Balance Sheet, of the state of affairs of the
 company as at 30th September, 2011;
 
 (b) in the case of the Profit and Loss account, of the Profit for the
 year ended on that date; and
 
 (c) in the case of the Cash Flow statement, of the cash flows for the
 year ended on that date.
 
 ANNEXURE TO THE AUDITOR''S REPORT
 
 Referred to in paragraph 3 of our report of even date,
 
 (i) (a) The Company has maintained proper records showing full
 particulars including quantitative details and situation of the Fixed
 Assets.
 
 (b) The Company has a programme for physical verification of the Fixed
 Assets, which in our opinion is reasonable having regards to the nature
 of the business.  Accordingly, the Fixed Assets have been physically
 verified by the management at the end of the year and no material
 discrepancies were noticed on such verification.
 
 (c) The Fixed Assets disposed off during the year were not substantial.
 According to the information and explanation given to us; we are of the
 opinion that the disposal of the Fixed Assets has not affected the
 going concern status of the company.
 
 (ii) (a) The Management has conducted physical verification of the
 inventory at reasonable intervals other than material lying with
 sub-contractors, which have been substantially confirmed by them.
 
 (b) The procedures of physical verification of inventories followed by
 the management are reasonable and adequate in relation to the size of
 the Company and the nature of its business
 
 (c) The Company has maintained proper records of inventory and no
 material discrepancies were noticed on physical verification as
 compared to the book records.
 
 (iii) (a) The Company has not granted/taken any secured or unsecured
 loans to/from Companies, Firms or other parties covered in the Register
 maintained under Section 301 of the Companies Act, 1956. Therefore,
 sub-clauses (b), (c), (d), (e), (f) and (g) of clause(iii) of the said
 Order are not applicable.
 
 (iv) In our opinion and according to the information and explanations
 given to us, there are adequate internal control systems commensurate
 with the size of the Company and the nature of its business with regard
 to purchases of inventory, fixed assets and with regard to sale of
 goods and services. During the course of our audit, we have not
 observed any continuing failure to correct major weakness in internal
 controls.
 
 (v) (a) According to the information and explanations given to us, we
 are of the opinion that the transactions that need to be entered into
 the register maintained under Section 301 of the Companies Act, 1956
 have been so entered.
 
 (b) In our opinion and according to the information and explanations
 given to us, the transactions made in pursuance of contracts or
 arrangements entered in the registers maintained under Section 301 of
 the Companies Act, 1956. and exceeding the value of Rs Five lakhs in
 respect of any party during the year have been made at price which are
 reasonable having regard to prevailing market prices at the relevant
 time.
 
 (vi) In our opinion and according to the information and explanations
 given to us, the Company has complied with the provisions of Sections
 58A and 58AA or any other relevant provisions of the Companies Act,
 1956 and the Companies (Acceptance of Deposits) Rules, 1975 with regard
 to the deposits accepted from the public. As informed to us, no order
 has been passed by the Company Law Board, National Company Law Tribunal
 or Reserve Bank of India or any other court or any other tribunal.
 
 (vii) In our opinion, Company has an internal audit system commensurate
 with size and nature of its business. .
 
 (viii) According to the information and explanations given to us, the
 Central Government has not prescribed the maintenance of cost records
 under Section 209(1) (d) of the Companies Act, 1956.
 
 (ix) (a) According to the information and explanations given to us and
 the records of the company examined by us, the Company is generally
 regular in depositing with appropriate authorities undisputed statutory
 dues including Provident Fund, Investor Education and Protection Fund,
 Employees'' State Insurance, Income Tax, Sales-Tax, Wealth Tax, Service
 Tax, Custom Duty, Excise-Duty and Cess and other material statutory
 dues applicable to it. There are no undisputed outstanding dues in
 respect of the above items which are more than six months as at the
 balance sheet date.
 
 (b) According to the information and explanations given to us, the
 disputed statutory dues on account of Sales Tax, Income-Tax, Customs
 Duty, Wealth Tax, Service Tax, Excise Duty and Cess that have not been
 deposited on account of matters pending before appropriate authority
 are as follows:
 
 Name of       Nature of 
               Dues            Amount        Period to     Forum where
 the                         (Rs in Lakhs)    which the     dispute is
 Statute                                     amount        pending
                                             relates
 
 Central     Denial of
             exemption        266.19 (Net    March,        CESTAT,
 Excise Act, availed under    of CENVAT      2000 to       Mumbai
 1944        notification No. reversal
                              and            March,
             6/2002, for
             supply           payment)       2004
             of biomass 
             based
             boilers
 
 Central     Excise duty 
             demand           82.45 (Net     June, 1983    Supreme
 Excise Act, on 
             bought out       of CENVAT      to April,     Court,
 1944        items supplied   reversal
                              and            2005          Delhi
             for centri
             fugals,          payments)
             which has
             already
             suffered
             duty at
             manufacturers
             end
 
 Maharashtra N.A. Tax           86.61          1982 to     Tehsildar,
 Land        (Rs 20 lacs paid                   2003        Indapur
 Revenue      under protest)
 Code
 
 Central 
 Sales       The exemption     159.83          2005-06     Joint
 Tax Act,    from Tax for 
             transit                                       Commissioner
 1956        sale, U/s.
             6(2)(b) is                                    of Sales Tax
             denied. Paid 
             Rs. 30                                       (Appeal),
                                                           Pune
             lakhs under
             protest
 
 (x) The Company does not have any accumulated losses as at the end of
 the financial year and has not incurred any cash losses in the current
 year or in the immediately preceding financial year.
 
 (xi) In our opinion and according to the information and explanations
 given to us, the Company has not defaulted in the repayment of dues to
 the financial institutions or banks or debenture holders during the
 year.
 
 (xii) The Company has not granted any loans and advances on the basis
 of security by way of pledge of shares, debentures and other
 securities.
 
 (xiii) In our opinion and according to the information and explanations
 given to us, the Company is not a chit fund or a nidhi/mutual benefit
 fund/society. Therefore, the provisions of clause 4(xiii) of the
 Companies (Auditor''s Report) Order, 2003 are not applicable to the
 Company.
 
 (xiv) In our opinion and according to the information and explanations
 given to us, the Company is not dealing in or trading in shares,
 securities, debentures and other investments. Accordingly the
 provisions of clause 4 (xiv) of the Companies (Auditor''s Report) Order,
 2003 are not applicable to the Company.
 
 (xv) According to the information and explanations given to us, the
 Company has not given any guarantee for loans taken by others from bank
 or financial institutions.
 
 (xvi) The term loans have been applied for the purposes for which they
 were raised.
 
 (xvii) According to the information and explanations given to us and on
 an overall examination of the balance sheet of the Company, we report
 that the no funds raised on short-term basis have been used for
 long-term investment.
 
 (xviii) According to the information and explanations given to us
 during the period covered by our audit report, the Company has not made
 any preferential allotment of shares to the parties and companies
 covered under the register maintained u/s. 301 of the Companies Act,
 1956.
 
 (xix) According to the information and explanations given to us during
 the period covered by our audit report, the Company has not issued any
 debentures.
 
 (xx) According to the information and explanations given to us during
 the period covered by our audit report, the Company has not raised any
 money by public issue.
 
 (xxi) According to the information and explanations given to us, no
 fraud on or by the Company has been noticed or reported during the
 course of our audit.
 
                                            For K. S. Aiyar & Co.
 
                                           Chartered Accountants
 
                                                     FRN 100186W
 
                                                Satish K. Kelkar
 
 Place : Mumbai                                          Partner
 
 Date  : 22nd November, 2011                Membership No. 38934